The Dragon's Gift: The Real Story of China in Africa was just chosen as one of Zocalo Public Square's Top 10 Books of 2010:

Brautigam provides a new way to see China’s economic growth, offering context for all the fearful headlines about its relationships with African countries.

Thanks, Zocalo -- "the website that connects people to ideas and to each other".  

Click here to read Zocalo's full review of The Dragon's Gift.

China-Africa Economic and Trade Cooperation White Paper

I've been getting calls these days from journalists who want to discuss "China-Africa Economic and Trade Cooperation," the new white paper produced by the Chinese government. Some say they find it fascinating. For anyone who has been following these issues closely, there is little new in the paper, which serves as a progress report on trade, investment, and aid. The report refers regularly to "China" and "Africa" as though these are two separate states (sometimes it mentions "African countries"). I sympathize with this; it's all too easy to slip into discussions of China and Africa as though the continent and the country are two equal partners.

The report does contain two new pieces of data from the notoriously untransparent Chinese government:

(1) Chinese FDI in African manufacturing. The report carries the first official statistics on the distribution of Chinese investment in Africa by sector that I have seen since about 2000 (see the chart that accompanies this article). Data on Chinese FDI needs to be viewed with some skepticism. I pointed out why in an earlier blog posting here. However, data is far more likely to be under-reported than over. Keeping this in mind, the report notes that by the end of 2009, accumulated manufacturing investment in Africa came to 22% of the total. This would make it $2 billion, at a minimum. Clearly, Chinese manufacturers are interested in investing in Africa. This data fits well with what I have seen, and the arguments I have made in The Dragon's Gift and "'Flying Geese' or 'Hidden Dragon'?

(2) Debt cancellation. Between 2000 and 2009, the Chinese government has canceled an accumulated 18.96 billion RMB yuan (about $2.8 billion at an exchange rate of 6.8 RMB to the dollar) of debt for 35 African countries. This is interesting to me, as it shows a slowdown in debt cancellations over time. It reinforces my conclusion that the debt cancellations were only (as announced by the Chinese) about the old, overdue, zero-interest foreign aid loans, and not the new concessional and/or market-rate loans provided by the China Eximbank. As far as I've seen none of those loans has been canceled.

The report provides data on African investment in China, which, it says, amounts to an accumulated $9.93 billion. Although African entrepreneurs in South Africa, Mauritius, and elsewhere have been investing in China, this relatively large figure includes investment that transits through the Indian Ocean island of Mauritius, which hosts a popular offshore financial center. This FDI, which is then labeled as coming from Africa via "Mauritius" is more likely to be from Chinese domestic investors who are "round-tripping" in order to take advantage of incentives for foreign investment. A similar dynamic has made "Mauritius" appear to be the largest foreign investor in India.

On a minor note, the report shows that Chinese translators are not immune to mistakes common in the Western media. For example, at several points the report's translators mistakenly substituted "Libya" for "Liberia" as in the discussion of a Chinese vocational technical center being provided for "post-war Libya". In fact, the Chinese are building a Liberian vocational training center on the outskirts of Monrovia at Gardinersville, on the site of the previous MVTC.

China's Resource-backed Weapons Exports: Norinco

book cover: Harper Collins

My nighttime recreational reading these days is Richard McGregor's The Party: The Secret World of China's Communist Rulers. I've not seen much yet in the book that sheds new light on China's engagement in Africa, with one interesting exception. In a chapter on the Party and the military (in which McGregor notes that the "heroic frontier business exploits" of the People's Liberation Army are now "a thing of the past") he gives an example of a business deal forged in Iraq in connection with the Iran-Iraq war (1980-1988).

Apparently Iraq bought weapons from China during the war, on credit, but couldn't repay. This unpaid debt and negotiations seem to have dragged on for years. Finally, McGregor reports, on p. 116: "it was paid in kind in 1996 by offering PetroChina a $1.2 billion oil concession in tandem with Norinco, a state-owned weapons manufacturer. The US ousting of Saddam Hussein delayed the project, and work did not begin on it until 2009."

The use of commodities to secure or repay export credits has a long history in China. As I pointed out in The Dragon's Gift, Japan used this system to finance its early exports and turn-key projects in China back in the 1970s.

Moises Naim and the $9 Billion Dollar Myth

Moises Naim (photo: le livre noir de l'economie)

This week in an Indian opinion piece on India-China rivalry, I read yet another reference to a myth first circulated (I think) by Moises Naim, editor of Foreign Policy, and then picked up by Fareed Zakaria. Here's how the story was told today:

"In his book The Post-American World, Fareed Zakaria quotes Moises Naim, editor of Foreign Policy magazine, telling a story about the Nigerian Government negotiating a $5 million loan for train systems with the World Bank in 2007. The bank had insisted that the Government clean up the notoriously corrupt railway bureaucracy before it approved the loan. The deal was almost done when the Chinese stepped in and offered the Government a whopping $9 billion loan to rebuild the entire train system — with no democratic and human rights strings attached. The World Bank was sent home within days!  This is how China works."

This is a great story. The only problem is (as I point out in The Dragon's Gift):  it never happened.

I don't mean to impugn Moises Naim's veracity. No doubt someone from the World Bank did tell him this tall tale. But because he seems to have liked the story, he never checked the facts. In fact, this is not how China works, and repeating this fictional story only helps cloud our understanding of Chinese engagement in resource-rich countries in Africa.

What really happened -- as just a little research would have revealed -- was this:  a Chinese company (CCECC) won an $8.3 billion contract to rebuild the Lagos-Kano railway. The Chinese government had offered a line of export credit for $2 billion at a competitive commercial rate, and a preferential export credit for $500 million. The Nigerian government discussed a number of projects that might have benefited from these tied credits, not just the railway. At the end of the day (as Nigerians are fond of saying), the $2 billion credit was never used and expired. The railway contract was suspended, and the $500 million preferential credit was renewed, and is likely being used today to fund a much smaller railway project. More on this

China's "Rogue Aid": Japan Times

The Wikileaked documents have spawned a number of stories on China and Africa. Here's one from Japan Times that offers up some interesting insights, but that also gets a bit garbled, particularly the part that purports to discuss my book, The Dragon's Gift. The headline ("Pernicious 'rogue' offers of aid") is calculated to push the "China threat" button, even if, as in this case, the reporter's story itself is fairly balanced.

One of the myths that circulates widely (and is repeated without question in this story) comes from a much-criticized report on Chinese aid prepared by the US Congressional Research Service. According to the Japan Times:

A U.S. congressional report last year quoted research showing that total Chinese aid in 2007 was $25 billion. Aid to Africa in the 2002-2007 period was more than $33 billion.

As I've noted on this blog before, these estimates are so preposterous that they should simply be treated as amusing, a funny story, except that they were presented to the US Congress as serious. Here's the inside story: what was the "research" quoted by the CRS report? A background paper on "Chinese aid" done as a class project by a group of graduate students from NYU. The students, perhaps encouraged by the researchers, decided to count every media report of a flow of finance from a Chinese entity into Africa, Latin America, or Asia as "aid". They lumped together grants, official and commercial bank loans, export credits, supplier finance, foreign direct investment, and so on. As long as it had some link to the Chinese government (i.e. it was from a state-owned bank or company) they added it to their database and called it "aid". 

This methodology has two obvious problems. First, investment, export credits, supplier finance, etc., is not "aid" but commercial in nature, and should not be counted as official development assistance. Second, the fraction of projects mentioned in the media that actually go forward is small, no matter who is financing them. This overstates the size of Chinese engagement. While the CRS report claimed that China gave $18 billion in "aid" to Africa in 2007, by my estimates, the real figure of official aid disbursed in 2007 was less than 8 percent of that.

The ever-interesting economist Professor Chris Blattman comments on "China: Not Playing By the Rules?" in his blog, chrisblattman.com:

In a front page headline today, the New York Times comes to the rescue of Gamesa, a Spanish company producing wind turbines in the nefarious Middle Kingdom.

The NY Times was reporting on Gamesa's complaint that Chinese companies are not playing by the rules, but taking advantage of government support. Blattman continues:

State subsidies and policies to foster infant industries at the expense of foreign competitors. This sounds almost like the dark and nefarious practices followed by… Spain.

Personally I see nothing dark or nefarious here. This is good old fashioned industrial policy at work. How else do we expect poorer countries to converge to riches? Innovate on the frontier? I am an amateur economic historian at best, but here’s my opinion: almost never been done.

China’s story today sounds a lot like continental Europe in the early 19th century, Japan after the Meiji Restoration, and the Asian Tigers in the 20th. Go back two hundred years and you can find the British press enraged with the same complaints as they lose their textile industry to that backwards backwater, France.

I remember well the same complaints made about Taiwanese copying when I lived in Taipei in 1979-80. Blattman points out that while suffering from "unfair Chinese competition", Gamesa had still managed to double its sales of wind turbines in China. Click here to continue.

China's DRC Roads Redux

Chinese road construction in DRC. photo Kilogold.net

While searching for an update on China's multi-billion infrastructure contract in the DRC, I came across a blog posting on the website of a Canadian company, Kilo Goldmines, Ltd., which had a photo of Chinese road construction in the DRC (right). Accompanying it was this note:

"While there are critics of this deal and pundits who claim this is the 'second colonisation' of the DRC, this barter deal is widely seen as a key catalyst to help jump start the economy and rebuild core infrastructure that has been neglected for decades. Kilo is a primary beneficiary of some of this newly developed infrastructure including rehabilitated roads around its Somituri project."

Chinese Refineries in Nigeria, Chad, Niger & Ghana: The Sudan Model?

Khartoum Refinery. photo credit: KRCSD.com

We've read recently about Chinese offers and deals to build refineries in African countries: Nigeria, Chad, and Niger and in Ghana, alumina, (but perhaps oil in the future). Not all of these deals have been concluded or financed, but we can learn something about the probable structure of the deals by revisiting the first of these: the Khartoum Refinery, a joint venture between the government of Sudan and China National Petroleum Corporation (CNPC), which opened in June 1998.

This refinery was financed by CNPC (there is no mention of China Eximbank, which was still a relatively small player in the 1990s), probably through a supplier's credit. According to a 2002 report by the IMF, the financing was secured by crude oil exports -- not access to a new concession, but as a guarantee.

At first, the debt service payments for the refinery were non-transparent, i.e. not included in the government's budget. The IMF made greater transparency a condition, and by 2002, as the Fund noted, Sudan's "budget now fully incorporates the debt service payments for the construction of the Khartoum refinery" (p. 21).

The IMF and the World Bank were concerned that Sudan had scaled back on debt payments owed to their two institutions in 2001. The value of Sudan's crude oil exports amounted to US$1.3 billion in 2001 (p. 10), but much of this value belonged to Sudan's foreign investors. In 2002, Sudan's net foreign exchange receipts were projected to be only around $120 million. Debt service for the refinery (which mainly supplied Sudan and its neighbors, including Ethiopia) amounted to $60 million annually. This left only about $60 million "for payments to the World Bank, the Fund, and other creditors (p. 38, n. 22)."

How did CNPC step ahead of the IMF and the World Bank, who are generally recognized as any borrower's "preferred creditors" (i.e. they are supposed to be paid first)? The debt service on the Khartoum refinery was fully secured by Sudan's crude oil exports. As the IMF noted, if debt service was not met, "the CNPC has the right to lift the equivalent amount of crude oil in kind. Nonpayment is thus not a realistic option (ibid)." Through securing its credit by crude oil, CNPC effectively became Sudan's most preferred creditor.

In its letter to the IMF, Sudan noted that in addition to including the repayments for the refinery in the budget, i.e. making it all more transparent, it planned to "implement a system that will ensure cash payment, as budgeted, of oil collateralized debt service payments in order to avoid in-kind lifting, thus further increasing transparency of oil revenues and avoiding distortion of oil delivery obligations" (p. 68). This was implemented.

What can Nigeria, Chad, Niger and Ghana learn from Sudan's experience?

First, clearly, securing the refinery with future oil revenues (and, perhaps, having Chinese managers) allowed Sudan to refine its own products rather than exporting crude and importing refined products, which is what Nigeria does today as a result of its failure to keep its refineries working. (We don't know how profitable/cost-effective the Chinese-built Khartoum Refinery, is in comparison with other, similar refineries. This information would be useful for countries contemplating similar arrangements.)

Second, be transparent. If a poorly governed country like Sudan can practice budget transparency for Chinese finance, there's no reason why others can't.

Third, price your domestic petroleum sales at or even above the market, as Sudan has done, in order to keep the petroleum sector above water and repay your creditors. Nigeria has far to go in this regard.

Fourth, you may be able to get away with the preferred creditor arrangement, but it won't be a walk in the park. It's easy to see from this why the IMF and the World Bank dislike the Chinese model of commodity-secured credits. They do effectively enable Chinese creditors to step ahead of the IMF and the World Bank in having Chinese credits repaid. This was one of the issues in the long stand-off over the $9 billion Chinese credit to the DRC.

Finally, keep in mind that by tying up your future revenues, you could at some point find yourself so squeezed that half of your net foreign exchange earnings are tied up in payments for just one project, as in Sudan.

Ghana's New China Deals: What's the Real Story?

Ghana and China presidents toast deal: WSJ photo credit

We've heard a lot recently about the new multi-billion deals signed between Ghana and several Chinese banks, including China Development Bank (US$3 billion) and China Eximbank (US$5.9 billion for 19 infrastructure projects). Yet a lot is still murky, including the actual value of these agreements, and how they are linked to Ghana's new oil and gas resources.

On September 22, 2010, Reuters reported a phone interview with Ghana's deputy finance minister in Beijing, who appeared to put the China Eximbank credit figure alone at US$9.87 billion, A separate story on the Government of Ghana's official website September 22, 2010 reported the Eximbank credit at $10.4 billion and said that it was "concessionary"). Now the story appears to have changed.

Here is a link to the October 26, 2010 Government of Ghana's official press release about these deals.

(1) According to this official press release, the total line of credit amount is less than the  $13 billion we were reading about in the papers:  still $3 billion from CDB but "only" $5.9 billion from Eximbank, or a total of $8.9 billion). [2015 update: the $5.9 billion from Eximbank never materialized, no doubt because Ghana--as we later saw--simply did not have the absorptive capacity for so much debt.]

(2) Interesting capacity-building and knowledge transfer plans are built into the agreement, for example: "The Framework Agreement entered into with the China Development Bank also makes provision for the CDB to share and transfer knowledge to the [Ghana] National Development Planning Commission on the lessons and experience gained in the application of project financing arrangements to the planning and implementation of infrastructure projects through multi-year investment rolling plans."

(3) The large deals are explicitly at commercial, not concessionary, rates, although Ghana also received a separate foreign aid package of a grant, zero-interest loan, and concessional loan/preferential export credit of $250 million at 2%.  This latter package is quite similar to the kind of packages offered to Mauritius, Namibia, and other credit-worthy middle income countries in Africa.
 
In September I had lunch in Beijing with Roger Nord, a senior adviser to the Africa Department of the IMF, and we talked quite intensely about the structure of these deals. I was pleased to read Roger voicing to Reuters a reassuring "good opportunity for Ghana" take on these deals in Reuters. At the same time, the difference between the September and October figures for China Eximbank, and the delay in the press release, suggest that some behind the scenes negotiating on debt sustainability may have been going on. This also happened, but with much more rancor, in the DRC, where the initial Chinese loan package was reduced from some $9 billion, to some $6 billion.

Ghana's parliament has to approve these deals, and presumably they will receive more information. What we still don't know is just how these deals are linked to Ghana's new oil and gas resources. In the DRC, Chinese loans were used partly to develop new resources and thus new cash flows, which were used to secure/repay separate loans for development infrastructure not connected at all to the mining investment. Yet according to Africa-Asia Confidential, "resource swaps are explicitly barred under the draft Petroleum Revenue Management Framework Bill being debated in parliament." Stay tuned.

African Public Opinion on China

Today a student asked me if I had any information on African public opinion about Chinese immigrants. Recently, a number of news articles have described a growing backlash against immigrant Chinese in places like Angola and Namibia. I don't know if survey data is collected on this issue (and I suspect it would be mixed at best: Chinese traders and operators of small service businesses are patronized by African consumers, but local businesses resent the competition). But we do have fairly good data on public opinion about "China" collected by the Pew Global Opinion Polls. I checked their 2010 report to see how "Africa" (in this case, only Egypt, Nigeria, and Kenya) stands in its views of China -- and, for comparison, the US.

The data were surprising. Views of China (see left) in Kenya were 86% favorable (US: 94%, see below), and in Nigeria, 76% favorable (US: 81%). In Egypt, however, opinion was more evenly divided: 52% were positive about China, while only 17% viewed the US favorably.

In Nigeria and Kenya, 90% of those surveyed thought that China's growing economy was a good thing for their country, compared with only 40% who thought so in the United States.

This public opinion survey, by one of the most trusted names in surveying, suggests that we should be cautious about drawing broad conclusions about a growing backlash of public opinion against China across Africa.

At the same time, Chinese labor relations in many countries continue to be very poor. For example, in October this year, Chinese managers at Zambia's Collum Coal Mine sprayed 11 protesting Zambian mine workers with buckshot, wounding two seriously (three Chinese were apparently also wounded, although it is not clear how or how badly). Events like this, over time, will chip away at the favorable public opinion of China in Africa.

African Traders in China and Substandard Goods

photo credit: Evan Osnos, The New Yorker

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One of the primary complaints I hear on China-in-Africa is the issue of substandard Chinese goods in African markets. Clearly, Chinese traders are bringing in a lot of these goods. But an under reported factor is the role of African traders in the supply chain.

As many as 20,000 African traders and entrepreneurs live, visit, and work in a suburb of the city of Guangzhou (Canton) called by locals "Chocolate City". The suburb is divided into different neighborhoods -- Nigerian, Malian, Benin and so on. From time to time the local police crack down on traders who have overstayed their visas.

A report by Bill Schiller in The Star (Canada) on a crackdown last year caught my eye recently because it contained an illuminating reference to practices of some of the African traders and how substandard goods enter African markets. A Nigerian trader explains:

"My brother came here first to seize the opportunity. So I came, too. Everything is so much cheaper here," he said one recent afternoon.

He and other African buyers tour local factories regularly, he says, looking to buy "seconds" with minor imperfections.

A pair of blue jeans can be had for as little as 15 Chinese yuan, the equivalent of $2.45, he says. These he can sell right here at his stall for 28 yuan, or about $4.60. But back home they can fetch as much as 45 yuan or $7.35, maybe even more.

Other reporting elaborates on these practices. Here's an excerpt from the English translation of an article on Chocolate City that appeared in Southern Weekend (courtesy of Africafeed.com):

“Every day after noon, “Chocolate City” begins to turn lively. Tens of thousands of black people seem to erupt from the ground in groups of twos and threes. Carrying large black plastic bags or wearing backpacks, they look through the stalls along the street. The stalls are filled with “tail goods” (excess production that did not meet quality standards) from thousands of small factories throughout Guangdong: blue jeans, unbranded television sets, hand-assembled cell phones.”

For more visuals on Africans in China, click here for Evan Osnos's great slide show from the New Yorker.

Complaints about substandard Chinese goods in African markets abound. Here's one way these goods enter, and why. The price differentials also help explain why African manufacturers are having such trouble competing with Chinese firms. In a future post I'll link to a paper on ways in which consumers in one Tanzanian market are successfully dealing with these challenges.

China, Malawi's Fertilizer Subsidies, and Monsanto

Photo: Intl. Center for Tropical Agriculture

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Now that five years have gone by, the success of Malawi in increasing food production through using fertilizer subsidies appears to be pretty well established, and interest in replicating Malawi's experience is growing.

An overview by Yasmine Ryan on the African Agriculture Blog: "Can Fertilizer Subsidies Grow Africa's Green Revolution?" provides interesting insights. What Malawi apparently did was not simply subsidize fertilizer, but hybrid maize seeds. A big beneficiary of this policy turned out to be Monsanto, which had an entree into the hybrid maize markets in Africa. "Is it philanthropy, PR, or simply shrewd business?" asks Ryan.

This made me think of the Chinese effort to boost their own seed companies and their hybrid rice seeds, in part through the 20 agro-technology demonstration centers in Africa that mix China's foreign aid funds and Chinese business incentives. "Is it philanthropy, PR, or simply shrewd business?" Time will tell. 

A (More) Transparent Chinese Mining Deal in Mozambique

 Coal mining: Image courtesy of Reuters

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Many people (including me) who study China-in-Africa were not well-versed in the standard operating procedures for large commercial deals in mining, power generation, and so on. I've learned a lot about this over the past few years, in particular, about the lack of transparency that is common across the board (ergo the need for organizations like Transparency International).

Several weeks ago I was invited to lunch with staff from a major US oil company with operations in Africa. I asked them what their "standard" practices were in offering signing bonuses, negotiating royalty rates, and so on. They were completely tight-lipped about all of this, citing commercial reasons for confidentiality.

Similarly, someone I know who has been advising on a complex power deal in Africa, in which Chinese banks are involved, told me that no details could be divulged, as it was standard practice on deals like this (not specifically Chinese deals) for all the parties to sign non-disclosure agreements while the deal was being negotiated. 

It was thus interesting to learn some details about an MOU signed between Australian firm Riversdale, and China's Wuhan Iron & Steel Corp (Wisco) and China Communications Construction Company, in Mozambique (Zambeze & Benga). The deal would grant Wisco "the right to buy 40% of the coking coal produced from the Zambeze project ... and at least 10% of the coking coal produced from the nearby Benga coal mine." The $800 million deal would give Wisco 40% of the Zambeze project, and 8% of Riversdale's shares. It would be payable in three tranches:

The first $200-million would be paid upon the completion and signing of a definitive agreement covering the joint venture.

A further $150-million would be payable on the successful completion of a feasibility study for Zambeze, subject to meeting certain milestones, including establishing the commercial viability of developing and operating the Zambeze project to produce no less than 30-million run-of-mine tons of coal a year.

A further $450-million would be payable on the granting of the mining contract, mining licence, final environmental approval and other necessary regulatory approvals required to proceed with the development of the project.

Wisco, CCCC and other Chinese companies will conduct "a comprehensive study of mine-to-ship logistics to enable the export of large tons of coal products from the Zambeze project to ports for export markets." The stages that this deal must pass through are no doubt similar to those for many of the other mining MOUs signed by Chinese companies. (These uncertainties help explain why so many signed MOUs do not result in actual projects.)



 

China's New Debt Cancellation & Aid Pledges

At the Millennium Development Goals summit in New York about ten days ago, Chinese Premier Wen Jiabao announced the latest figures on China's accumulated debt cancellation so far:  25.6 billion yuan of debt "for the heavily indebted poor countries and the least developed ones". [This comes to about $3.83 billion at an exchange rate of US$1.00 = RMB yuan 6.69.]

He also announced a continuation of China's MDG pledges:  Over the next five years (i.e. before 2015), China will contribute:

• construction of 200 schools
• 3000 Chinese medical experts
• train 5000 medical staff from developing countries
• provide medical equipment and medicines for the 100 hospitals built earlier

This raises a few questions. What happened to the earlier pledge to train people for the schools being built? Are the Chinese medical experts the same as the teams of doctors traditionally sent to African countries, or is this something different? How are the medical staff going to be trained? Is this a full degree, or M.D. or nursing course being offered? Or simply a few weeks of training? 

More details on all of this would be helpful.

How Many Africans are Studying in China?

In recent years, I've been pleased to see a lot of African students attending conferences and workshops on China-Africa topics in Beijing and Shanghai. Now I think that the turnout has actually been quite low, if a report by Antoaneta Becker is correct:

"In recent years the Chinese government has encouraged more African students to study in the country, offering thousands of scholarships. In 2009 China had 120,000 students from Africa, ten times more than it did in 2000." 

I'm willing to bet that this number, 120,000 is wrong. The late (and much missed) Professor Li Baoping estimated in a 2006 paper that more than 18,000 African students had at that point received scholarships over the decades from the Chinese government. Hong Kong University expert on Africans in China, Professor Adams Bodomo, estimated in a recent paper that 12,000 African students were currently studying in China under government scholarship, with perhaps 8000 more studying under their own funding.  

Here are the official numbers. Do the math.

           Year        Number of Africa Scholarships/Year
 
            1983         400
            1986       1600
            2005       2000
            2009       4000
            2012*     5500


*Pledged at the Sharm el-Sheikh FOCAC Meeting, November 2009.  Sources for others are in my book, The Dragon's Gift, p. 121.

Unpacking China Eximbank's $10.4 Billion Ghana Credit

Ghana-China flags. Ghanaweb.com

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On September 22, 2010, as I was flying back to Washington from Beijing, the government of Ghana announced it had signed a $10.4 billion credit package with China Eximbank. The finance is expected to begin disbursing next year (over how many years is not clear). It would be, it is said, at "concessionary" rates (not yet disclosed) and repayable over 20 years. No Chinese source has yet confirmed this, as far as I know, particularly the "concessionary loan" aspect. China Development Bank reportedly has clinched a separate loan for $3 billion which will be targeted toward oil sector development.

The $10.4 billion credit will be repaid with exports, not directly through the budget, according to Ghana's deputy minister for finance and economic planning. Does this sound familiar? It should, if you've been reading my book: see pp. 46-49 of The Dragon's Gift.

Although this is being described in Ghana as a "concessionary loan" I doubt that this finance comes from the Eximbank's concessional loan (you hui dai kuan) window.  And I doubt we can count the package as official development assistance (ODA), or that it will be on terms concessional enough to qualify as ODA.

Eximbank has given several true concessional foreign aid loans to Ghana in the past. Indeed, as research by Isaac Idun-Arkhurst (see his slide #10) has shown us, 42% of Ghana's Bui Dam loan package from China was a true concessional loan, i.e. qualified as ODA, while 58% was an export credit at a preferential commercial rate.

One piece of evidence in favor of Ghana's interpretation (and hope): the credit is said to be payable over 20 years. Concessional loans from Eximbank, or you hui dai kuan, do tend to have 20 years as a repayment period.

However, this is what I expect to see.

As details of the new Ghana deal unfold, it will be revealed as another of the well-priced "long term trade agreements" or deferred payment, resource-backed commercial export credits, where the interest rate will be based on LIBOR plus a margin. Nigeria had an offer of one of these. But when former Nigerian president Yar'Adua and former finance minister Shansuddeen Usman looked more deeply into the "concessionary loan" they thought Nigeria was getting, they found that only the $500 million export credit portion was at a preferential rate. The $2 billion portion was at a commercial rate.

I hope Ghana is getting a better deal than Nigeria was offered. The deal still needs to be approved by Ghana's parliament, which means we should be hearing a lot more about it.

Out from Behind the Great Firewall and Into Switzerland

Africa Pavilion: courtesy The Atlantic.c..

...

I've been in China (Shanghai and Beijing) for the past eight days. Lots of interesting developments around the topic of Chinese aid in Africa, meetings with Africans in China, and a tour of the Africa Pavilion at the Shanghai Expo (right). But frustrating to be behind the Great Firewall and unable to access my blog & much else.

Next week I will be speaking on my China-Africa research in Geneva September 30th, and Bern October 1st.

New World Bank Study on Large-Scale "Land Grabs"

More mistaken reports of Chinese investment. photo: farmlandgrab.org

Two days ago, on September 7, 2010, the World Bank released its long-awaited study of large scale land investments. The report overall seems quite balanced and contains the expected mix of concern and pragmatism. In some countries with ample land and low population densities, commercial investment might provide benefits, if done with concern for mitigating social and environmental impact, and within the rule of law. The report emphasizes that far too often, this is not being done, and the potential for harm is immense.

Although I think it will be a helpful contribution, overall I was a bit disappointed in the study, for several reasons.

First, they actually made use of the media reports collected by GRAIN at farmlandgrab.org, put all of them into a database, and performed econometric analysis on them, without checking the veracity of these reports. Yet what does this really tell us about the realities of large-scale land investments when so many of the media reports are wrong?

With regard to Pakistan, for example, World Bank researchers did fieldwork to cross-check the media reports collected by GRAIN: "In none of these cases could any evidence of investment be found" (p. 40). Yet, apparently, even these spurious reports still went into the databases and number crunching.

This seems to me a bit like doing econometric analysis of media reports of all the suspected locations of Saddam Hussein's weapons of mass destruction in Iraq circa 2002 and then saying something useful about the threat these posed to US national security.

Second, the report is very bland and addresses the issue at such a high level of aggregation that for anyone interested in learning specifics about the reality of Chinese activity in agricultural investment abroad, there was nothing whatsoever to learn. This is very different from the report produced by the researchers at FAO, IFAD, and IIEE in 2009 which admittedly had as one purpose looking into the veracity of these reports. Indeed, the researchers at Grain.org criticized the report for the very same reason, saying:

Had the Bank really wanted to shed light on this new investment trend it would have at least peeled back the curtain on the investors. Who are they? What are they after?

But perhaps other readers will have different opinions? Click here for an ongoing discussion on this topic.  

Keywords: China, Africa, World Bank, land grab

Do We Have Statistics on China's Africa "Land Grab"?

Commercial investment in agriculture in low income countries is a hot button issue, for many good reasons. Often linked to corruption, frequently involving unscrupulous grabbing of land from unprotected traditional holders, the transfer of land from subsistence or smallholder use to commercial or large-scale use is fraught with problems and nearly impossible to manage in a socially sustainable manner. But that's all the more reason to be scrupulous with our evidence and accusations.

A couple of days ago, I had an email from a student who wondered what I thought of "the statistics of IFPRI, GRAIN, FAO" on China's "land grabs". I answered that IFPRI, GRAIN, and FAO did not actually have any statistics on Chinese land investments. They only had collections of media reports. With regard to Africa, many of these media reports are quite off the mark.

Here's a bit more detail that might be helpful to new (and more senior) researchers who are tempted to use these "statistics".

(1) IFPRI: The International Food Policy Research Institute, part of the Consultative Group on International Agricultural Research, or CGIAR, compiled media reports of land-grabbing in an April 2009 policy brief. The original version of this policy brief contained a large table simply listing "Overseas Investments". I contacted IFPRI and suggested that although the text mentioned the sources as "media reports", titling the table "Investments" was misleading, suggesting that these reports were all actually real and the investments underway. They then revised the title of the table to state that these were "Media Reports" of investments.

In the course of this, I had an interesting exchange on the veracity of some of the China/Africa media reports with the IFPRI authors on their blog -- to see this exchange on the IFPRI website, click here. After this exchange, which was in the spring of 2009, I went to Mozambique and Zimbabwe myself, and was able to confirm my hunches on both of these cases, as I report in The Dragon's Gift. In the spring of 2010, IFPRI invited me to present my research on China's agricultural engagement. For a link to the presentation, click here, and for a three minute interview, click here.

(2) GRAIN:  GRAIN is an international advocacy organization supporting the rights and livelihoods of small farmers. GRAIN lists "China" along with the Gulf states as "the biggest players" in their 2008 study of the new land grabs. Chinese companies have made, or tried to make, several big investments in Asia and Latin America. These can be confirmed. But in Africa, for the most part, this hasn't been the case.

The GRAIN researchers were not very diligent about validating their sources for African "cases". For example, GRAIN reported that China had set up the China Africa Development Fund in 2008 with $5 billion to invest in African agriculture. Their source: a 2008 article in a local Liberian newspaper. It would not have taken much fact-checking for the GRAIN researchers to determine that the China Africa Development Fund was actually established by China Development Bank as an equity fund in 2007. It began with $1 billion to invest in any kind of profitable project in Africa: infrastructure, manufacturing, mining, agro-industry, etc. When the fund reaches its full size, it is expected to be $5 billion. It is a rather substantial error to say that it is focused on agriculture.

Like IFPRI, GRAIN also compiled a table of "land grabs" as reported by the media. They include most of the same stories. With regard to Africa, as I reported in The Dragon's Gift, I looked into the three major stories of "large land grabs" -- the DRC, Zimbabwe, and Mozambique -- and found little or no substance to two of them (the DRC case which I have discussed elsewhere on this blog, does have some substance. How much is still unclear).

To my mind, the worst case of misrepresentation at GRAIN's list is probably the Mozambique story, reproduced below from their website:

According to a study by Loro Horta, the son of Timor L’Este’s President Ramos Horta, the Chinese government has been investing in infrastructure development, policy reform, research, extension and training to develop rice production in Mozambique for export to China since 2006. Eximbank has already provided a loan of US$2bn and pledged an additional US$800m for these works, though more is expected. Some 10,000 Chinese settlers will be involved. G2G contracts and land leases are still under negotiation, though. Land cannot be owned by foreigners in Mozambique, so joint partnerships with "sleeping" Mozambican entities may need to be struck.

There are so many mistakes in this, I hardly know where to begin to address it. It will have to be the subject of a separate post.

(3) FAO: The Food and Agriculture Organization (FAO) of the United Nations, has sponsored an excellent recent study focused on Africa:  FAO, IFAD & IIED. 2009. Land Grab or Development Opportunity? by Lorenzo Cotula, Sonja Vermeulen, Rebeca Leonard and James Keeley. This study actually had the funding to do fieldwork and interview companies, and the researchers were quite careful. They don't produce "statistics" but they do examine a number of cases.

With regard to Chinese "land grabs" in Africa (and elsewhere) the authors say: "A common external perception is that China is supporting Chinese enterprises to acquire land abroad as part of a national food security strategy. Yet the evidence for this is highly questionable..."

They also note "as yet there are no known examples of Chinese land acquisitions in Africa in excess of 50,000 hectares where deals have been concluded and project implemented."

Soon, we should be able to read the World Bank's study on "land grabs" which is due to be published in the latter half of 2010. With the kind of budget and access enjoyed by the World Bank, we might see more authoritative coverage of this issue. More on this in a future post.

The Chinese Communist Party and African Agriculture

One of CSFAC's investments in Africa. (photo James Keeley)

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Are Chinese companies pushing aside their party comrades when it comes to investment in African agriculture? A recent China Daily news article (excerpt below) reported on a China-Africa agricultural cooperation conference held in mid-August 2010 in Beijing, co-sponsored by China's Ministry of Agriculture and the International Department of the Communist Party of China Central Committee.

Two things interested me. First, the CCP's co-sponsorship of the conference, which, to me, indicates that agricultural cooperation is still viewed primarily as a political venture rather than an economic one. If it was an economic venture, I would expect to see it co-sponsored by the Ministry of Commerce's Department of Outward Investment and Economic Cooperation.

Second, the quotation below from China State Farm Agribusiness Corporation indicates lessons learned from past efforts to invest using "party to party" links. In The Dragon's Gift, I note several other interesting examples of this "learning from failed political aid projects" in Ghana.

"The fragile political situation is still the biggest challenge for Chinese companies to invest in Africa," Xu Jun, deputy general manager of China State Farms Agribusiness Corporation (CSFAC), told China Daily on Tuesday. Last year, a cooperative program worth more than 70 million yuan ($10 million) between the CSFAC and Ghana's ruling party came to an abrupt halt when the opposition party took office, he said.

"Now we prefer to talk with government administrations instead of party leaders when it comes to further cooperation," Xu said.

The CSFAC is one of the country's leading agriculture resources development companies. It started its first farm in Africa in 1994 and now operates seven farming projects across Africa, with more than 8,600 hectares of land. 

Finally, it is also interesting to see how small, and how few, CSFAC's investments in Africa have been. In a 2003 article on China.org.cn, CSFAC was said to have 11 projects in Africa (some could have been processing) on about 16,000 hectares of land. If these figures are in the right ballpark, CSFAC's investments in Africa have shrunk over this decade, rather than expanding. Greater emphasis on a market rationale rather than a political rationale might be the reason.
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The Real Cost of Chinese Railway Construction in Nigeria

Train in Lagos, Nigeria (photo: Accelerator, Nigeria)

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For several years, stories about China Civil Engineering and Construction Corp (CCECC)'s $8.3 billion Lagos-Kano railway modernization contract have circulated in Nigeria and in the international press. The editor of Foreign Policy, Moises Naim, for example, mistakenly claimed in the New York Times that China was giving $9 billion in aid to finance this project. (There was actually no aid offered, although a preferential export credit of $500 million was discussed in connection with the railway).

Nigeria's existing, colonial-era railway between Lagos and Kano is far from adequate for a major transportation artery, antiquated, non-standard (narrow) gauge, and single track. However, I've read that CCECC's price for the new railway was "hugely inflated," that the project was hastily delivered to CCECC without proper tendering, and that there was not an inadequate "front end design" and/or feasibility study before awarding the contract.

I've been doing research in Nigeria off and on since 1987. I know that Nigerians are rightly suspicious of any large infrastructure project proposed for their country. They have bitter experience of money being "eaten", cost overruns, and white elephants. Was the CCECC project, recently scaled back, fated to be another in this long line?

Several weeks ago, Professor Richard Joseph sent me a photocopy of a fascinating full page ad published by CCECC in the Guardian (Lagos) on June 18, 2008, in which CCECC defended their 2006 contract, in particular the claim in the June 15, 2008 Sunday Punch (Lagos) that the contract was "inflated by $5.8bn" and should have cost $2.5bn.

CCECC contends that:

• An initial feasibility study for the project was produced by the Nigerian branch of the international engineering firm Julius Berger together with an Italian firm, TEAM Consultants, in 2001. CCECC says they also conducted a "detailed feasibility study" before they participated in a limited tender, and an environmental impact assessment after the contract was awarded.
• They produced 4 possible designs for the railway: (1) Rehabilitation of existing narrow gauge, single track for $1.76 billion; (2) Rehabilitation plus 2nd new narrow gauge, double track for $6.7 billion; (3) New, standard gauge, single track line for $5.81 billion; (4) New standard gauge, double track except Abuja-Kaduna, for $8.3 billion.
• In April 2006, along with two other (unnamed) "pre-qualified companies", CCECC was invited to submit tender documents, which they did in June 2006 (yes, this does seem hasty).
• Their costs were very reasonable.

Let's look into the cost issue further.

An important Chatham House report cited an interview with an unnamed World Bank official in Abuja, May 2008, who said that $3.04m per km was "double the cost it should have been." The report noted that a review by the Yar A'dua administration "discovered the costs to be highly inflated" but they didn't question the reports of this review. If the costs were "double" then this implies that the proper cost should have been around $1.52m per km. 

CCECC claimed that their bid for the double-track railway, at US$3.04 million per km, was low compared with the "international average construction cost of US$3.50m per km". (The railway distance is 1315 km. For a double track, this makes 2703 km x $3.04 or $8.22bn.)

As I read all this, I wondered:  what do we know about railway construction costs?  Is there any way to shed light on these various claims? I turned to Google.

I learned that costs per km are affected by a number of things, including materials, the terrain, and so on. But there is actually plenty of information on this online if one wanted to check general ballpark figures for reasonable costs of railway construction.

For example, news reports on a number of projects at the Railway Gazette website give costs, including a project financed in 2009 by the Asian Development Bank in Afghanistan: a 75km project for $170m, or $2.26m per km (single-track).

In 2008, Libya began a railway project, a standard gauge, double-track line awarded to Russian Railways, for a cost of 2.2 bn Euros ($2.8 billion) for 554 km, or $5m per km. Libya later signed a contract in 2009 with China Railway Construction Corporation for $805m for 172 km of railway on the Tripoli-Ras Edjer line ($4.7m per km).

A January 6, 2009 article in the Guardian (Lagos) by Moses Ebosele, "Lack of Policy Trails Nigerian Railway in 2008," quoted from a World Bank study (for Nigeria?) which "estimated capital cost of conversion from the present narrow gauge railway to standard gauge at between $1.5m and $5.0m per route km." Averaging these would give us $3.25m per km. (This doesn't say whether the standard gauge would be single or double-track.)

Here in Washington, DC, I found that our fancy new Dulles Airport Aerotrain cost $1.5 billion for only 3.8 miles (6.12km), or US$245.0m per km! Of course this is an extremely nice train. We're very happy with it.

Clearly without knowing the specifics of the Lagos-Kano line, it's hard to say which estimate is the most reasonable, or even whether the entire project was a good idea or not. But this little survey suggests that the contract costs of $3.04m per km in the CCECC contract do not look out of line. 

Indeed, in November 2009, CCECC and a new Nigerian administration signed a new contract. This contract is for a shorter, 200km stretch of railway between Abuja and Kaduna. This new project is estimated to cost $876 million, or $4.38m per km. The $500 million preferential export credit from China Eximbank will be applied to this project.

Whatever the details of the new contract, it's clear that three years and much negotiation later, the cost per km rose rather than fell. Which is what one would expect, given inflation.
But perhaps Nigerians with access to the inside story will have a different view of all this?

Chinese Prisoners Rumor Redux: South China Morning Post

Stirring up trouble
Claims that China sends convicts to labour in Africa are unfounded
Barry Sautman and Yan Hairong Aug 21, 2010
What more could promoters of the "China threat" idea add to the litany of charges that have grown stale over a decade? One claim is that China sends convicts to labour in developing countries. We have been to 10 African countries to research China-Africa links. Rumours of Chinese convicts circulate in each one.  The notion is not new. In the 1970s, 60,000 Chinese laboured alongside an equal number of local workers to build the Tanzania-Zambia Railway. As US historian of the railway Jamie Monson describes it, when the first 1,000 Chinese workers arrived in Tanzania, "all wearing identical gray cotton suits and balancing small blue suitcases on their shoulders ... crowds of curious onlookers gathered, some speculating that the strangers were soldiers or prisoners sentenced to hard labour." In Africa, rumours of Chinese prisoners arise because of cultural differences in work and living habits. The rigorous working pace and discipline of Chinese employees give rise to the idea that anyone who would work so hard must be a prisoner. Also, skilled Chinese workers and engineers do not live like Western expats, who in Africa have individual houses and local servants. Many Chinese live collectively, often sharing rooms, and do their own housework. Often, local people cannot conceive that foreign professionals would live that way and imagine them to be prisoners

Popular rumours circulate for other reasons as well. In Zambia's Copperbelt, we interviewed a leader of the opposition Patriotic Front (PF). The party's  head, Michael Sata, is famous for his anti-Chinese mobilisations and once claimed that "Zambia has become a labour camp. Most of the Chinese are prisoners of conscience."

The Copperbelt PF leader explained to us, however, that Zambians think that "if 100 Chinese come, 20 of them are skilled and the other 80 are unskilled prisoners ... it's a way for local people to demean the Chinese and to say we're better than the [prisoners]".

In some developing countries, rumour-mongering has a more deliberate aim and seems to be fostered as part of competition between local and Chinese construction companies. Claims of Chinese convict labourers have been made by a prominent local building firm owner in Sri Lanka and by the chief executive of a "leading player" in Kenya's construction industry. In Namibia, the owner of a local construction company told a wire service: "We have a hard time getting jobs from government, while the Chinese ship in container-loads of prisoners to work on public projects." No evidence is ever presented.

Then there is the political element; what better way to deflate the soft power of a strategic competitor than to claim that it exports prison labour and thereby undermines the employment opportunities of host peoples?

A 2010 US State Department report on human trafficking asserts that "an increasing number of Chinese and Indian men recruited to work in Chinese- or Indian-owned mines in Zambia's Copperbelt region are reportedly exploited by the mining companies in forced labour. After work hours, some Chinese miners are confined to guarded compounds surrounded by high concrete walls topped by electrified barbed wire."

We have interviewed Chinese at mines in Zambia. They are salaried, highly skilled workers, engineers or managers. Their compounds' walls and wire serve the same function as similar structures throughout Africa: to keep out intruders.

It is one thing for average people to misunderstand the presence of guest workers in their countries and quite another for competing businesspeople, politicians and researchers to take part in rumour-mongering. Brahma Chellaney, a strategic studies specialist, has recently done that. Chellaney's sensational, but unsubstantiated, charge got his essay about it into prominent newspapers globally, including this newspaper.

Neither we nor other researchers have found evidence to confirm the Chinese prisoners rumour. Let's take but a few examples. Deborah Brautigam, a US specialist in China-Africa relations, has said: "I ask about this issue fairly frequently during my research and have never come across any evidence of Chinese prisoners working in Africa." Anna Ying Chen, research associate at the South African Institute of International Affairs, has averred that "the rumour that Chinese companies employ prisoners who are confined to their own camp to save costs is indeed a misperception". And Swiss journalists Serge Michel and Michel Beuret, who visited many African countries for a book about the Chinese presence, have said that "in all our travels we have not met a single [Chinese prisoner] and feel free to assert that this is anti-Chinese propaganda".

Anti-Chinese propaganda or not, those who spread such rumours cannot explain why China's government would incur the reputational risk and expense to do so. After all, few convicts are highly skilled and, in developing countries, such labour is relatively cheap. Often claims are based on the idea that China is overflowing with prisoners, but, in fact, it has about the same number of people imprisoned (including all those in "administrative detention") as the US does, despite a population that is more than four times as large.

There may be some former Chinese prisoners among the hundreds of thousands of Chinese working in developing countries, but to contend without evidence that the Chinese government has a programme of sending out great numbers of prisoners is another matter.

Barry Sautman is a political scientist and lawyer at Hong Kong University of Science & Technology. Yan Hairong is an anthropologist at Hong Kong Polytechnic University

Chinese Entrepreneurs and Workers in Africa: An Angola Story

Chinese workers in Angola (BBC).

In 2008, Chinese companies reported a turnover of around $20 billion from construction contracts in Africa. Tessa Thorniley gives us a firsthand look inside  the world of Chinese business in Africa in her recent Danwei article: "Chinese Entrepreneurs in Africa, Land of a Billion Workers." An excerpt on Angola follows: 

...In Portuguese-speaking Angola, which pumps two million barrels of oil a day, the two communities [Chinese and African] are even further apart. Meng Mei, born in France to Chinese parents, has been working in Luanda since 2008. "In my experience there is almost no contact between the locals and Chinese workers. There is no integration. On the construction sites, the Chinese usually live on site. They live, work and sleep there. They don't go out. It's quite similar to the way migrant workers behave in China. They save money and send it home.

"For me, however, it is quite odd. I am Chinese but born and raised abroad. The Chinese workers do not go to movies or out to restaurants very much and they certainly don't do this with the locals. Some higher-ups may interact more, but only for business purposes," she says.

The lack of strong ties between the communities has created distrust and resentment.

There are long-simmering tensions over the number of Chinese workers brought over by firms doing unskilled jobs that could have been given to local laborers. The Angolan government has tightened its immigration policies, and the cost of winning a long-term visa for a Chinese worker, together with travel costs and welfare payments, has risen to as much as USD20,000.

In response, Chinese companies have tried to take on more local staff, according to William Wang, an IT engineer who works with Meng Mei in Angola. “Back in 2008, maybe you would only see Chinese workers in Chinese companies but that has changed a lot in the last two years. I know a Chinese construction boss in Luanda, he hires 70 Chinese workers and 500 or 600 locals. It's not uncommon," he says. "I don't think the Angolans feel we are taking jobs. We have created employment also."

He adds: “In the past, I think there were problems because even the brightest Angolans had no real expertise – because of the war they didn't have much chance to develop. An IT engineer was qualified if he could switch on a computer and type. That's not the case anymore. Universities are training Angolans and they are increasingly skilled. Perhaps Chinese companies doing business here incentivised that?”

For the full article, click here.

Tessa's reporting suggests a few enduring conclusions: (1) Chinese companies respond to local conditions and incentives. (2) Analysts always need to keep in mind that the China-Africa relationship is evolving quickly. For more on these changes, see the August 20, 2010 Wall Street Journal article by Benoit Faucon and Sherry Wu: "Hostility Toward Workers Cools Angola-China Relationship."

Is China Sending Prisoners to Work Overseas?

Yesterday I received an email from a UNDP colleague asking me what I thought about recent media stories of "Chinese convict labor" being used overseas, and the public denial of this practice by the Chinese Ministry of Commerce.

Here's the story: Early in July, several papers including the Washington Times and the Sri Lanka Guardian and the Japan Times published an opinion piece written by a New Delhi-based security analyst, Dr. Brahma Chellaney, a former journalist and currently a professor at the Centre for Policy Research in New Delhi. Chellaney wrote that China was engaged in "the forced dispatch of prisoners to work on overseas infrastructure projects". He said that Sri Lanka had "thousands of Chinese convicts" working on infrastucture projects in Sri Lanka and that convicts from China were also building 4,000 houses as part of China's tsunami reconstruction aid project in the Maldives. Earlier, in June, opposition politicians in Sri Lanka had claimed that 25,000 Chinese convict labourers were working on the island. At the end of July, the op-ed was carried in Canada's Globe and Mail, and appeared on the Guardian UK (website). I hear it is now being discussed in Brazil.

In a later interview with The Hindu, Chellaney did not give any information about his sources but said that they were "unimpeachable." He told Bloomberg News: “The opinion piece was based on actual investigations and thorough fact-checking and I stand by what I wrote,” Chellaney said. “That they deny is not a surprise.”

The Hindu also quoted an African diplomat, who raised practical questions about the claim:  “Chinese workers overseas is already a sensitive issue, just by their being there and working on projects in large numbers,” said a diplomat from an African country. “Why on earth will China make matters worse by shipping out criminals? It is very hard to believe.”

Dr. Chellaney actually provided no sources, no evidence, and no specifics to support his claim. I've never heard of him, so I asked a friend and former classmate who is a New Delhi-based foreign policy expert whether Dr. Chellaney was a credible source. Here is part of what he replied: "He is a bit of an ultranationalist ... I read this story. I don't believe it. Brahma tends to fly off the deep end sometimes while he is China bashing..." Chellaney's blog contains several other recent articles on China, including "Sri Lanka: Another Case in China's Blood-Soaked Diplomacy" and  "Insatiable Dragon."

I have heard stories of forced Chinese prison labor overseas but these happened during the colonial period:  the British and the Dutch dispatched Chinese and other prisoners to work off their sentences in a number of overseas locations, including South Africa. As noted by Malia Politzer in Migration Information:

The first wave of Chinese immigrants to South Africa was small (only 17 Chinese names were on a convict list dated the year 1724) and consisted largely of convicts and ex-convicts banished from Indonesia to South Africa under Dutch colonial rule. ... Chinese convicts who did come over were considered "black" and largely treated as slaves... 

Although Dr. Chellaney reported that the forced export of prisoners is a "new policy", the claim about modern-day Chinese convict labor in Africa has been around for many years. For example, in May 1991, Roberta Cohen, a trustee for the International League for Human Rights, and a former State Department political appointee, wrote a letter to the New York Times claiming that when she lived in Benin in the 1980s, she had "learned" that Chinese prison labor was being used there. "Seventy percent to 75 percent of the construction workers building the Dassa-Parakou road in central Benin were known to be prisoners" she said, but provided no information as to how she had "learned" this, or how this was "known".

The German paper Der Spiegel reported opposition politician Michael Sata's claim that 80,000 "former prisoners" from China were working in Zambia. Getting more specific, Richard Behar in Fast Company said that he had interviewed an immigration "consultant" in Zambia who said she had "processed paperwork for hundreds of Chinese prisoners." (This made me curious:  How did she know they were prisoners? Behar didn't say.).

Chinese engineers quarters, Sierra Leone 2007. Photo by DB

My best guess is that stories like this are largely urban myths. People view the way that Chinese construction workers live, in extremely basic conditions like those on the left, in compounds on the construction site. These construction sites are usually surrounded by security fences, but this is to keep the construction site secure, and in particular, to prevent the stealing of construction materials, rather than to keep the workers locked inside.

Since the Chinese first began exporting labor in the late 1970s, they have sent 4,970,000 people to work abroad (including to Hong Kong) according to official statistics from the Ministry of Commerce.

Forcing prisoners to work overseas as official policy, as Dr. Challaney maintains, is most unlikely. Is it possible that some Chinese prisoners might have been sent overseas voluntarily, on the kind of work release apparently practiced even today in the state of Louisiana for the BP oil spill cleanup? Certainly, prison labor is commonplace in China, as it is in some parts of America. Given the high levels of corruption, the need for local governments to raise revenues, and the multiple Chinese actors operating overseas, it's plausible that a contractor could make a deal with local prison officials. But exporting large contingents of prison labor as official policy would be politically very risky. If it has happened, it is almost certainly uncommon and ad hoc.

I ask about this issue fairly frequently during my research and have never come across any  hard facts or evidence of Chinese prisoners working in Africa. But after giving a talk at a university here in the US a few months ago, I met a student who told me that he actually had some evidence on this from his own travels. I have encouraged him to write this up and will link to his blog if he decides to do so.

What do other researchers say? Swiss journalists Serge Michel and Michel Beuret report in their book China Safari (p. 252):

...the dragon slayers and some NGOs have spread the rumor that most Chinese workers in Africa are actually prisoners. But in all our travels we have not met a single one and feel free to assert that this is anti-Chinese propaganda.

I encourage anyone with actual evidence on this issue to comment. But please provide specific evidence, rather than sightings of Chinese workers who looked like prisoners, or other unsubstantiated claims.